Quicker Access to Cash... at a Price

Supply chain finance (SCF) is a term of recent coinage that refers to a specific set of tasks within the financial supply chain. SCF in fact is not so much a discipline as it is a facilitating technology, focused on solutions such as procure-to-pay automation, order-to-cash automation, and the use of a common platform for buyers, sellers and financial institutions. The goal of supply chain finance solutions (which is much narrower than the management of the financial supply chain) is to provide liquidity to suppliers through pre-shipment, post-shipment and post-acceptance financing, Aberdeen Group's Scott Pezza notes. The trade-off, of course, is to accept a little less money in exchange for earlier payment. 

As you would expect, any time a new buzzword is coined, a number of solutions emerge to satisfy the perceived gap in the marketplace, and SCF is no exception. Manufacturers can turn to enterprise solution vendors (SAP, Oracle), best-of-breed software firms (Kyriba, Prime Revenue) and even some banks (Bank of America Merrill Lynch, BNP Paribas) for solutions that offer an alternative to manufacturers who need short-term access to cash during the "accounts receivable" period, when their cash flow is at the mercy of customers who haven't paid their bills yet. Rather than going to a bank for a short-term loan or selling invoices to a third party at a discount (a process referred to as factoring), companies can instead use SCF to automate the entire cash flow process.

According to a report compiled by Global Business Intelligence, 1,000 apparel suppliers participate in retail giant Walmart's Supplier Alliance Program, whereby the suppliers can sell Walmart invoices through the program and get paid within 10 to 15 days, rather than the usual 60 to 90 days, at interest rates based in part on Walmart's AA rating. Similarly, General Mills maintains an SCF program with grain, ingredient and packaging suppliers, and plans to expand the program to warehousing partners.

This is a companion piece to the feature "Managing the Financial Supply Chain."

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